Income & Wealth Distribution (AQA A Level Economics): Exam Questions

The economist Greg Mankiw has written that ‘society faces a trade-off between efficiency and equity. Efficiency means that society is getting the maximum benefits from its scarce resources. Equity means that those benefits are distributed fairly among society’s members. Often, when government policies are designed, these two goals conflict.’

The Resolution Foundation estimates that 1% of adults, about 488 000 people, own 14% of the UK’s assets – worth about £11 trillion. At the other end of the scale, 15% of adults, about 7.3 million people, either own no assets at all, or are in debt. Meanwhile, income is also unequally distributed, but not to the same extent as wealth

Source: Office for National Statistics, 2023

Extract E: In-work poverty is on the rise in the UK

Approximately 14 million people are in poverty in the UK, more than one in five of the population, including 4 million children and 2 million pensioners, up by 400 000 and 300 000 respectively over the past five years. A family is classified as being in poverty if it has an income, after housing costs, of less than 60% of the median income for their family type. A family’s income includes earnings from employment, self-employment and state benefits.

For generations, politicians in the UK have highlighted the important role of employment in tackling poverty. However, employment is no longer a strong defence against poverty. The Joseph Rowntree Foundation, an anti-poverty group, said that while paid employment does reduce the risk of poverty, about 56% of people living in poverty in 2018 were in working households, compared with 39% 20 years ago. Seven in 10 children in poverty are now in a working household, and such in-work poverty is particularly common amongst single-parent families. Working single parents accounted for three in 10 households in poverty in 2018, compared with two in 10 in 2011. Working poverty among single-earning couple households also rose dramatically, increasing from 19% in 2003–04 to 31% last year, meaning this group now experiences poverty rates almost as high as those households where no one works full time.

Amid concerns that the poorest receive worse healthcare and have the most insecure jobs, the Government faces a huge task if it is to ‘level up’ incomes across the UK by narrowing the gap between the wealthiest and poorest regions. Some out-of-work benefits have not kept up with inflation, putting downward pressure on wages, contributing to the rise in in-work poverty. Other factors include rising prices of energy, essential groceries and rented properties. Source: News reports, 2021

Extract F: Solutions to the problem of in-work poverty

Charities and think tanks have called for action to reduce job insecurity, lower housing costs and increase earnings for low-paid workers. Frances O’Grady, the former general secretary of the Trades Union Congress, said: “The government must crack down on business models based on poverty pay and insecure jobs. Zero-hour contracts should be banned and the minimum wage must go up to at least £10 per hour right away.” The Chartered Institute for Personnel and Development called on companies to play their part in preventing working poverty by paying employees a living wage: ‘Not only is there a strong moral case for paying staff a living wage, there is also a compelling business case, with research showing that money and debt problems may affect people’s performance at work, which can hurt a company’s profits.’

If the labour market cannot pay sufficiently high wages to prevent poverty, a possible policy is to use means-tested benefits to make up shortfalls in household incomes. However, the introduction of Universal Credit, which rolls six benefits into one, did not help some low-income families because of complexities involved in claiming it, and the time lag before claimants could receive their first payment.

Increasingly, households in poverty have been looking beyond both employers and the government for support. Charities and food banks have never been busier. The Trussell Trust reported that in 2020–21, 2.5 million emergency food parcels were delivered, an increase of 128% on 2015–16. Even professional workers are sometimes using food banks, alongside other sources of support. The Royal College of Nursing reported that, during the previous 12 months, more than half of their members had relied on food banks, credit or borrowing from friends and family to pay essential living costs. Source: News reports, 2021

Data from the Organisation for Economic Co-operation and Development (OECD) suggest that countries with very different levels of pre-tax income inequality often have similar levels of post-tax income inequality

Data from the Organisation for Economic Co-operation and Development (OECD) suggest that countries with very different levels of pre-tax income inequality often have similar levels of post-tax income inequality.